HS 200 Lectures (1) - 74-97 PDF

## Change in firms' ratings because of PROPER | Rating | June 1995 | Dec. 1995 | Dec. 1996 | Change (%) | |---|---|---|---|---| | Gold | 0 | 0 | 0 | 0 | | Green | 5 | 4 | 5 | 0 | | Blue | 61 | 72 | 94 | 54% | | Red | 115 | 108 | 87 | -24% | | Black | 6 | 3 | 1 | -83% | | Total | 187 | 187 | 187 |...

## Change in firms' ratings because of PROPER | Rating | June 1995 | Dec. 1995 | Dec. 1996 | Change (%) | |---|---|---|---|---| | Gold | 0 | 0 | 0 | 0 | | Green | 5 | 4 | 5 | 0 | | Blue | 61 | 72 | 94 | 54% | | Red | 115 | 108 | 87 | -24% | | Black | 6 | 3 | 1 | -83% | | Total | 187 | 187 | 187 | | ## Environmental science (Economics module) - Course code: HS 200/HS250 - Prof. Haripriya Gundimeda - Department of Economics - Indian Institute of Technology Bombay - Module 4: Applications of instruments in solving local and global environment problems ## SELECTION OF POLICY INSTRUMENT - Number of criteria: - Static Cost Efficiency - Dynamic Cost Efficiency - Goal Fulfillment - Administrative Costs - Barriers to Entry - Polluter Pays Principle - Politics of Implementation (Acceptability) ## Policy Instrument Selection Matrix | Criteria | CAC Regulation | MBI | |---|---|---| | Static cost efficiency | No - neither static nor perverse | Yes - if market not too thin (specially) | | Dynamic cost efficiency | No - Perverse incentives | Yes - Depends | | Goal fulfillment | (No) may be at firm level but not aggregate level | No - optimal tax level unknown. Inflation may be problem | Yes - The regulator can be fairly certain of reaching target | | Administrative | Best - control Standards for new plants | Depends | Hard to administer with | | Barrier to entry | | Neutral | Can be used by established | | Polluter Pays Principle | Yes | Yes (if auctioned) | | Politics of implementation | Risk for rent-seeking behaviour | Risk of opposition if not refunded | Neutral (at least if grand-fathered) | ## Quantity-based emission permits ## U.S. Market for SO2 Allowances - Sulfur dioxide (SO2) is a primary product of coal-burning power plants - SO2 pollution lowers the pH scale of rainfall, leading to the problem commonly known as acid rain. - Increased acidity of lakes and rivers. - Slower growth, injury or death of forests. - Visibility impairment. - SO2 can impair respiratory function and is linked to various respiratory ailments. ## U.S. Market for SO2 Allowances - What are Allowances? - Allowance - allows the utility to emit one ton of SO2 during a given year or any year after that. - Hold allowances equal to annual emissions. - Allowances are fully marketable (bought, sold, traded or banked). - Allowances may only be used for compliance after the calendar year they are allocated. ## U.S. Market for SO2 Allowances - For this to work: - Establish an overall cap on pollution (i.e. Q'). - For the U.S. SO2 market, the cap was set in the 1990 Clean Air Act amendment. - Reduce SO2 emissions from fixed sources by 50% from 1980 levels (17.3 million tons). - Allocate permits (allowances) to polluters. - In the U.S. SO2 market, a 'grandfathering' scheme was used. - In Phase I, Allocated to polluters based on their 1985-87 pollution. (allowances to each unit@ 2.5 pounds of SO2/mmBtu of heat input multiplied by the unit's baseline (the average fossil fuel consumed from 1985 through 1987). - facilitate trading between polluters. - Revised in Phase II (@1.2 mm Btu) - In the U.S. SO2 market, trading was generally unrestricted. - Stiff penalties to those firms who exceeded their allowances ($3000 per ton). ## Market for SO2 Allowances - A map of the US with blue dots indicating Phase 1 plants, gray dots indicating Phase 2 plants. ## Market for SO2 Allowances - A graph showing actual emissions, unused allowances and allocations of allowances over time. ## Market for SO2 Allowances - Reasons why the program resulted in a robust market: - There were wide differences in the cost of emission abatement - The policy was flexible. - The implementation was straightforward. - The provisions were enforced => the government's property right to no pollution above the standard is secure. ## Was it a success? - Two side-by-side maps show the annual mean ambient sulfur dioxide concentration in the US from 1989 to 1991 and from 2003 to 2005 showing a reduction in pollution. ## Instruments used for industrial pollution | Country | Region | Instrument | |---|---|---| | CORNARE, Colombia | Latin America | Pollution Charges | | Rio de Janeiro, Brazil | Latin America | Targeting | | Juarez, Mexico | Latin America | Technical Assistance | | Gudalajara, Mexico | Latin America | Assistance in EMS | | Leguna lake, Philippines | S E Asia | Pollution Charges | | Philippines | S E Asia | Pollution Rating | | Indonesia | S E Asia | Pollution Rating | | China | S E Asia | Pollution Charges | | Palm Oil producers, Malaysia | S E Asia | Pollution Charges and enforcement of standards | | Poland | Eastern Europe | Pollution Charges | ## Instruments and sample applications | Policy Instrument | Natural Resource Management (Water, fisheries, agriculture, forestry, minerals & biodiversity) | Pollution Control (Air, water, solid waste & hazardous waste) | |---|---|---| | Direct Provision | Provision of parks | Waste Management, Timer at intersection | | Detailed Regulation | Zoning, Regulation of fishing (e.g., dates and equipment), Ban on ivory trade to protect biodiversity | Catalytic Converters, traffic regulations etc., Ban on chemicals (Azo dyes) | | Flexible Regulation | Water quality standards | Fuel quality, CAFÉ | | Tradable quotas or rights | Individually tradable fishing quotas, Transferrable rights for land development, forestry or agriculture | Emission permits | | Taxes, fees or charges | Water tariffs, park fees, fishing license | Waste fees, congestion pricing,, gas taxes, industrial pollution fee | | Subsidies and subsidy reduction | Water, fisheries, reduced agricultural subsidy | Energy taxes, reduced energy subsidies | | Deposit-refund schemes | Reforestation deposits or performance bonds in forestry | Waste management, used vehicles, vehicle inspection | | Refunded emission payments | | NOx abatement in Sweden | | Creation of property rights | Private national parks, property rights and deforestation | | | Common property resources | CPR management | | | Legal mechanisms, liability | Liability bonds for mining or hazardous waste | | | Voluntary agreements | Forest Products | Toxic Chemicals | | Information provision, labels | Labelling of food, forest products | PROPER and other labelling schemes | | International treaties | International treaties for protection of Ozone layer, seas, climate etc. | | ## CLIMATE CHANGE AND CARBON MARKETS - ## Summary of Global Warming Observations - The rate and duration of warming in the 20th century are more significant than at any other time in the last 1000 years. - Likely increase in the total atmospheric water vapour in many NH regions (several per cent per decade). - More dry spells in some subtropical regions Increase in Annual land precipitation in the middle and high latitudes of the NH. - Increase in cloud cover by about 2% over the Northern Hemisphere since the beginning of the 20th century. - Decreasing snow cover and sea ice amounts in NH. - The increase in global mean sea-level rise @ 1.0 to 2.0 mm/year during the 20th century - Increase in heavy and extreme precipitation events ## The Source of Global Warming - Is the observed warming over the last 50-100 years due to natural climate variability, human influence, or both? - "... natural forcing alone is unlikely to explain the recent observed global warming or the observed changes in vertical temperatures structure of the atmosphere.” - “In light of new evidence and considering the remaining uncertainties, most of the observed warming over the last 50 years is likely due to increased GHG concentrations.” ## The Main Greenhouse Gases | Greenhouse gases | Chemical formula | Pre-industrial concentration (ppbv) | Concentration in 1994 (ppbv) | Atmospheric lifetime (years)* | Anthropogenic sources | Global warming potential (GWP)** | |---|---|---|---|---|---|---| | Carbon dioxide | CO2 | 278,000 | 358,000 | Variable | Fossil-fuel combustion / Land-use conversion / Cement production | 1 | | Methane | CH4 | 700 | 1,721 | 12.2+/-3 | Fossil fuels / Rice paddies / Waste dumps / Livestock | 21*** | | Nitrous oxide | N2O | 275 | 311 | 120 | Fertilizer / Industrial processes / Combustion | 310 | | CFC-12 | CCI2F2 | 0 | 0.503 | 102 | Foams / Liquid coolants | 6,200-7,100**** | | HCFC-22 | CHCIF2 | 0 | 0.105 | 12.1 | Liquid coolants / Foams | 1,300-1,400**** | | Perfluoro-methane | CF4 | 0 | 0.070 | 50,000 | Production of aluminum | 6,500 | | Sulfur hexafluoride | SF6 | 0 | 0.032 | 3,200 | Dielectric fluid | 23,900 | *Source: PEW Center (www.pewclimate.org/global-warming-basics) ## Policies to address climate change - Domestic policy instruments to enable individual nations to achieve their specific targets/goals. - International policy instruments to allocate responsibility among nations. - Main criteria - Cost effectiveness (Minimum aggregate costs). - Dynamic incentives for technology innovation and diffusion. - Adaptability to economic and social changes. - Distributional equity. - Institutional (political and administrative) feasibility. ## How to combat? - Green house gas emission reduction - a collective target - Collective responsibility - Bilateral or multilateral policy - Voluntary agreement leads to free riding and emission leakages - Kyoto Protocol – an agreement made under UNFCCC - Countries that ratify agreed to reduce the emissions below a target level or engage in emissions trading if they maintain or increase the green house gases - Objective: Stabilization of the greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. ## Kyoto Emissions Reductions - Compared to '90 levels - A bar graph comparing emission reductions compared to 1990 levels for various countries and regions. ## Introduction to Kyoto Protocol - Voluntary treaty signed by 141 countries, including the EU, Japan and Canada - Target for reducing GHG emission by 5.2% below 1990 levels by '12 - US, with over a fourth of global emissions, is not a party to the agreement. - 2 types of transactions are allowed under Kyoto – Allowance-based, and Project-based. ## Kyoto Mechanisms - Allowance-based - Project-based ## Thank You